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More than a fifth of an estimated 250 mainboard-listed stocks trading below 20 cents have proposed consolidations to comply with the Singapore Exchange’s new rule aimed at curbing speculation and market manipulation

Over one in 5 SGX counters trading below that amount consolidating their shares

MORE than a fifth of an estimated 250 mainboard-listed stocks trading below 20 cents have proposed consolidations to comply with the Singapore Exchange’s new rule aimed at curbing speculation and market manipulation here.

Introduced on March 2, the new Minimum Trading Price (MTP) rule of 20 cents a share takes effect on March 1 next year. The year’s grace period gives firms time to get their six-month average share price above 20 cents.The best way of doing that is through a share consolidation, which involves reducing the number of issued shares. Once that has been done, each investor will have his stake re-calibrated to reflect the new shareholding.

Theoretically, a share consolidation reduces the number of shares outstanding while increasing the value of the stock, thereby maintaining its market value. For instance, by reducing the number of shares on issue to one-tenth the original total, the stock price could rise 10 times, all other things remaining equal.

According to SGX My Gateway, 54 companies that have announced plans to consolidate their shares have generated an average 12.4 per cent price gain in April. In comparison, the FTSE ST Small Cap Index generated a 4.4 per cent total return in April.

Industrials and information technology, which have 12 stocks each, represent the largest sectors among the 54 companies. The average capitalisation of the 54 stocks is $127.6 million.

But remisier Alvin Yong pointed out that it may be too early to say that the MTP rule is working because not all 54 companies that proposed consolidations have begun trading on a consolidated share price basis in April.

“In order to know if share consolidation is good for these companies, shouldn’t we wait for all 54 stocks to start trading on a consolidated basis before tracking their monthly returns?”

GMG Global, which in March proposed consolidating its shares, said that the exercise is also intended to reduce the magnitude of volatility in its share price. The company also hopes that a higher trading price and net tangible assets per consolidated share will raise its profile and make its consolidated shares more attractive to investors.

GMG Global’s share price has been trading between 5.5 cents and 8.1 cents in the last six months.

Blumont Group, which proposed share consolidation last month, said it “may help to reduce fluctuations in its share price, reduce the percentage transaction cost for trading in shares and reduce the bid-ask price spreads of shares”.

This will ultimately help to enhance the trading liquidity of the shares, Blumont said. The stock has traded in a range between 0.9 cent and 3.1 cents in the past six months.

Meanwhile, the mainboard-listed companies that fail to meet the 20-cent rule after the grace period will go on a watchlist for three years, during which their shares will not be eligible for investment under the Central Provident Fund Investment Scheme. The CPF announced this move – aimed at safeguarding members’ CPF savings – on Feb 10.

Meanwhile, companies that fail to comply with the minimum trading price by Feb 28, 2019, could be delisted or have the option to transfer to the Catalist board, where there is no MTP.

Guest Speaker Mr. Hemant Amin, Founder, Chairman and CEO of Asiamin Capital, a single family office, and Founder and Chairman of the BRKets investor groupMarch 17th, 2015

Hemant, a big thank you for educating and inspiring the next generation of leaders. You are a rare positive role model in the Asian capital markets and you showed the students that it is possible to create value because one has the right values and mindset like Buffett and Munger! :)